The big drop in mortgage rates did more to spur refinancing than homebuying, according to a weekly survey of lenders by the Mortgage Bankers Association, and now rates are rising again.
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Mortgage rates are on the rebound this week as investors rule out an emergency Fed rate cut and weigh whether fears of a recession are overblown.
Yields on 10-year Treasury notes, a barometer for mortgage rates, climbed to nearly 4 percent Wednesday — about where they were on Aug. 1 — on weak demand for government debt offered in a $42 billion Treasury auction.
After plunging to a new 2024 low of 6.40 percent Monday in the wake of two surprisingly weak job reports last week, rates for 30-year fixed-rate conforming mortgages bounced back by five basis points Tuesday, to 6.45 percent, according to rate lock data tracked by Optimal Blue.
Homebuyers with good credit have had opportunities to lock rates on conforming, FHA and jumbo mortgages at under 7 percent since Fed policymakers dropped hints at their July 31 meeting that they’re getting ready to cut rates.
But so far, the drop in mortgage rates has done more to spur refinancing than homebuying, according to a weekly survey of lenders by the Mortgage Bankers Association.
Applications for purchase loans picked up by a seasonally adjusted 1 percent last week when compared to the week before, and were down 11 percent from a year ago, the MBA’s Weekly Applications Survey showed. Requests to refinance were up 16 percent week over week and 59 percent from a year ago.
Despite the downward movement in rates to the lowest level since May 2023, purchase applications only saw small gains, with an increase in conventional purchase applications largely offset by decreases in FHA and VA purchase applications, MBA Deputy Chief Economist Joel Kan said in a statement.
Joel Kan
“For-sale inventory is beginning to increase gradually in some parts of the country, and homebuyers might be biding their time to enter the market given the prospect of lower rates,” Kan said.
More than 8 in 10 household financial decision-makers surveyed by Fannie Mae in July said it was a bad time to buy, though most didn’t see last week’s big drop in mortgage rates coming.
Doug Duncan
“While we’re seeing signs that affordability may be improving in certain parts of the country as supply slowly comes online, household incomes remain stretched relative to would-be mortgage or rent payments, and our latest survey once again reflects real consumer frustration with the housing market,” Fannie Mae Chief Economist Doug Duncan said Wednesday of the survey results.
Mortgage rates near 2024 lows
Even after Tuesday’s bounce, rates for 30-year fixed-rate conforming mortgages were down 82 basis points from a 2024 high of 7.27 percent registered on April 25, according to Optimal Blue.
Optimal Blue data lags by a day, but lender data collected by Mortgage News Daily showed rates for 30-year fixed-rate loans surged again Wednesday, bringing the two-day bounce in mortgage rates to 24 basis points. A basis point is one-hundredth of a percentage point.
Last week’s initial jobless claims and payroll reports pushed the unemployment rate to 4.3 percent in July, triggering the “Sahm Rule,” a recession indicator named for economist Claudia Sahm.
But Monday’s release of the Institute for Supply Management’s Services PMI showed the services sector expanded in July — providing some assurance that the economy is only cooling, rather than contracting. Last week’s ISM Manufacturing PMI also indicated the economy continued to expand for the 51st month in a row in July.
While investors still expect the Fed to start cutting rates at its Sept. 24 meeting, talk that the central bank might call an emergency meeting before then has died down.
“We have little doubt that the Fed will ease policy substantially at its remaining meetings this year,” economists at Pantheon Macroeconomics said in their latest U.S. Economic Monitor.
Forecasters at Pantheon are projecting the Fed will cut rates by 1.25 percentage points this year, while futures markets tracked by the CME FedWatch tool predict that the odds of rates coming down by more than 1 percentage point this year are less than even.
In bolstering their case that more dramatic rate cuts are needed, Pantheon forecasters predicted that the dramatic decline in the major stock market indexes following last week’s jobs reports and financial turmoil in Japan is likely to shake consumer confidence and dent spending.
Fed rate cuts aren’t likely to be a panacea, Pantheon economists said, and “the first few Fed rate cuts will do nothing to boost the disposable incomes of most mortgage holders, who locked in very low rates during the pandemic; they won’t refinance until rates fall considerably further.”
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